GrowthWorks under the gun?

If David Levi, chief executive at publicly-listed Matrix Asset Management, and the firm’s labour-sponsored unit GrowthWorks Capital are feeling the pressure, then it’s hard to detect — at least in a phone conversation.

“It’s a process. We are working through all the various issues we face. All companies face them, it’s just that ours are a little more public,” said Levi, who eases the work pressure by training for and competing in marathons. “We are not panicked by it, but are methodically working through the issues we have to work through,” added Levi.

But away from his training track, the streets of Vancouver, Levi faces a plateful of issues that run from regulatory matters, to dealing with the effects of recent federal budget changes on both ending tax credits and so-called “character conversions,” to the forced cancellation of a planned offering of flow-through shares and trying to complete a merger with another money manager.

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Of the issues, the British Columbia Securities Commission matter is the most serious, given that, as Matrix has acknowledged, “there can be no assurance that the compliance field audit will not result in the BCSC initiating regulatory proceedings.”

A few weeks back, it was reported the BCSC had conducted a “compliance field audit” and was not happy with what it found at GrowthWorks. Specifically, the BCSC “identified deficiencies in GWC’s system of compliance procedures and internal controls.”

Levi wouldn’t be drawn into a discussion of matters that are of interest to the BCSC. He did say: “we disagree with the concerns that they have raised but we are obviously co-operating with them.”

This is the second time in the past six months that the two parties have been on opposite sides. Last December, the BCSC ruled the so-called redemption management plan – that allowed unitholders to redeem, subject to limitations – would not be extended. The reason: it would not be in the public interest.

Then the BCSC also used the term “novel” to describe the financing arrangements put in place to support the Canadian Fund’s liquidity. The original arrangement for that fund was established in May 2010 as a $20-million “participating agreement” with Roseway Capital. That interest gave Roseway the right to receive 20% of the proceeds earned on or generated from the sale or divestment. The agreement had a three-year term.

Last December, GrowthWorks said that the Canadian Fund had been advanced $33.5-million, of which $11.7-million was due by year end (the amount was repaid) and a further $27.2-million (including interest and participation amounts) was due to be repaid by May 28, 2013. That’s less than three weeks away. (In a Feb. 28, 2013 update, a payment of $25.7-million is required.)

“We are engaged in a process to deal with that issue,” said Levi.

Less than a year after the original loan from Roseway Capital, GrowthWorks Canadian Fund secured another loan of $9.5-million from Working Opportunity Fund, another labour-sponsored fund that’s part of GrowthWorks. That loan, originally for a term of less than a year, was extended and repaid along with $2.18-million of accrued interest last December.

It’s possible that loan may have attracted the interest of the regulators, given that the GrowthWorks Canadian Fund is “a fund managed by a management company with the same parent company as the manager” of the Working Opportunity Fund.

The BCSC may also be interested in the way and the circumstances by which the original $9.5-million loan was made and whose interests were served by the loan.